9 bills propose changes to Prop. 13

March 8, 2013

Updated Aug. 21, 2013 1:17 p.m.

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More than two-thirds of Orange County voters twice approved a half-cent sales tax to pay for transportation projects, including this 2008 improvement of I-5. Bills before the Legislature propose lowering Proposition 13's two-thirds voter-approval requirement to 55 percent for a variety of uses, including transportation projects, public safety and libraries. FILE PHOTO: THE REGISTER

More than two-thirds of Orange County voters twice approved a half-cent sales tax to pay for transportation projects, including this 2008 improvement of I-5. Bills before the Legislature propose lowering Proposition 13's two-thirds voter-approval requirement to 55 percent for a variety of uses, including transportation projects, public safety and libraries. FILE PHOTO: THE REGISTER

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Californians have consistently expressed overwhelming support for Proposition 13, but opinion polling – and a key ballot measure – has also shown voters open to tweaking aspects of the landmark reform.

How far they're willing to go may soon be tested, with at least nine state bills aimed at altering the 35-year-old limitation on property taxes. The number of bills is expected to be whittled down, as most bills would require voter approval – and most are similar in their intent to make it easier for local government to raise taxes.

"Any effort to change what voters see as the core of Proposition 13 will be an uphill fight," said Dan Schnur, director of USC's Unruh Institute of Politics. "But voters don't necessarily consider the threshold for local revenue measures as being central to Proposition 13's core tax protections."

Voters offered evidence of that in 2000, when they approved Proposition 39. The measure reduced from two-thirds to 55 percent the Prop. 13-mandated share of voters needed to approve local school construction bonds.

Numerous bills now before the Legislature call for similarly lowering the special-tax threshold for, variously, libraries, transportation projects, community development and public safety. Another measure aims to get more property tax from commercial properties that have changed ownership but avoided updated assessments.

Field Poll's last survey on Prop. 13, in 2011, found nearly the same level of support as when 65 percent of voters approved it in 1978. Backing is typically stronger for the law's tax limitations for homes than for commercial properties. Even so, only 41 percent of voters favored removing commercial properties entirely from Prop. 13's protections, according to the poll.

But a 2012 USC poll, directed by Schnur, parsed the question more finely. It asked whether "large" commercial properties should be removed from Prop. 13's protections – and found that 59 percent of respondents either "strongly" or "somewhat" supported such a change. That particular reform has never been proposed, but the finding was another indication of the electorate's willingness to tinker with Prop. 13.

The Legislature appears more inclined toward such tinkering than at any other time since Prop. 13 became law. That's largely because Democrats, who are more eager than Republicans to find new revenue, are one vote away from gaining a two-thirds majority in both chambers.

To put the question of lowering the local threshold on the ballot takes two-thirds legislative approval. A change to assessment rules for commercial properties also requires two-thirds legislative approval, but then would become law without going to voters.

LOCAL STRUGGLES

Among key selling points for Prop. 13 in 1978 was the specter of fixed-income retirees being priced out of longtime homes by soaring property taxes, which were regularly updated to keep pace with land values. Those seniors found sympathy from many other homeowners, who also faced ever-higher assessments.

Prop. 13's fix was to limit those taxes to 1 percent of a property's value. It also limited annual assessment increases to 2 percent – which particularly protected homeowners in periods like the housing boom of 1995 to 2005, when detached homes appreciated an average of 10 percent annually.

The annual increase limits are lifted only when ownership changes, at which point the baseline tax for a property is reset at 1 percent of sales price.

Because property taxes were a primary source of local government revenue, a fallout of the law was that more responsibility for funding programs was shifted to the state.

Additionally, Prop. 13 said that any new or increased statewide taxes required a two-thirds vote of the Legislature. And it required that any new local taxes be approved by two-thirds of the locality's voters.

"Prior to Prop. 13, the local government had more ability to adjust their own taxes," said Dan Carrigg, lobbyist for the League of California Cities, which generally supports lowering local-tax-vote thresholds to 55 percent. "Local government is a lot closer to people and more accountable than the state Legislature, but we have fewer options to raise revenue. And the state doesn't have the ability anymore to make major infrastructure investments. If cities don't get more options to make these improvements, it's not good for California."

Prop. 13 purists are adamant in their opposition.

"There is nothing more important to me this year than defeating these bills," said David Wolfe, lobbyist for the Howard Jarvis Taxpayers Association. The group is named after its now-deceased founder, co-author of Prop. 13.

"They're clearly an assault on Prop. 13," he said of the bills. "These would eviscerate the two-thirds vote requirement. Not all local bonds are bad, but voters don't all understand they're going to end up on their tax bills. If you want to spur home ownership and job growth, eviscerating Prop. 13 is not the way to go about it."

The state's sales taxes are the highest in the country and its personal-income taxes are third-highest, according to the nonpartisan Tax Policy Center, in Washington. But relatively low property taxes pull the per capita tax burden down to 11th highest. Calculated as a percentage of personal income, California's tax burden ranks 15th.

Proponents of reforming Prop. 13 say part of the reason sales and income taxes are high is to compensate for the relatively low property taxes brought on by the law.

COMMERCIAL PROPERTY TARGETED

Proposed legislation that would produce more tax revenue from some commercial property owners was introduced unsuccessfully in 2011, when it drew opposition from three dozen corporations and business groups, including the California Chamber of Commerce.

The bill, reintroduced as AB 188 in January, targets a Prop. 13 provision defining ownership change as when an individual acquires more than a 50 percent share of a property. Bill proponents say this allows a costly loophole.

Among examples cited is E&J Gallo's 2002 purchase of Louis M. Martini, which included 1,765 acres of vineyards in Napa and Sonoma counties. The land was worth an estimated $75 million but remained at an assessed taxable value of less than $14 million because 12 family members made the purchase, with no one owning a majority share.

Opponents say the increased tax burden on companies would have a negative impact on the state's businesses, its economy and its employment rate.

"We think the current system, which has been in place since 1978, is fair," said David Kline, spokesman for the California Taxpayers Association. "We think it's a very bad idea to increase taxes on business."

Kline's group also says that the measure would create a split roll, in which commercial properties are taxed at a higher rate than residential ones.

That characterization is disputed by the California Tax Reform Association, which wants a split roll in which all commercial properties are reassessed to current market value regularly – regardless of ownership.

"Ammiano's bill is so minimal, it should pass – but you'll get this massive lobbying effort against it," CTRA Executive Director Lenny Goldberg said, adding his group's goal will take years to achieve. "We have to get this discussion to a much higher level."

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